In 1925, President Calvin Coolidge declared, “The chief business of the American people is business,” capturing the nation’s strong pro-business spirit. But a marker for the cultural shift toward Corporate America was placed in 1924 at 40 West 40th Street, with the opening of the American Radiator Building in Manhattan. With its bold design, drawing on the imagery of coal and fire, and serving as a corporate showroom, it was a distinctive symbol of America’s growing economy.
While most skyscrapers were covered in stone, the Radiator Building towered with its black brick facade and a sleek polished black granite base, giving it an eye-catching presence in New York City. The dark surface was offset with bronze accents and an illuminated crown. At the time, designers grappled with supplying heating throughout tall buildings, but the Radiator Building solved the problem with a central boiler in the basement, with zone specific piping throughout the structure. It also highlighted the company’s innovative technology, allowing customers to just hop on an elevator and experience the innovation at work.
A young artist fascinated by skyscrapers was captivated by the building. Georgia O’Keeffe created a stunning series of American modernist paintings, culminating in her 1927 masterpiece, “Radiator Building—Night, New York.” The work beautifully reflected how deeply business was woven into the fabric of American life.
Sectors of the U.S. economy
The U.S. economy is woven into 20 primary sectors determined by the North American Industry Classification System (NAICS), which is used mostly for statistical information on economic activity such as GDP, employment, productivity and trade statistics. Each sector is also broken down into hierarchal sub-sectors. Likewise, the finance industry (markets) relies on the Global Industry Classification Standard (GICS). GICS has 11 primary sectors, which are: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Information Technology, Communication Services, Utilities and Real Estate. Each is further divided into industries and sub-industries, offering additional business-type specificity. For example, the Health Care sector comprises Biotechnology, Pharmaceuticals, Life Sciences, Health Care: Equipment, Supplies, Technology, Providers and Services.
Historical data highlights sector characteristics that could work to an investment portfolio’s advantage. Some can be highly correlated, such as Information Technology with Communication Services, Financials with Real Estate, Consumer Discretionary with Information Technology, and Industrials with Materials. Moderately correlated sectors often are Consumer Staples with Health Care, Energy with Materials and Utilities with Real Estate. The least correlated sectors tend to be Utilities with Information Technology, Utilities with Consumer Discretionary, Health Care with Energy and Consumer Staples with Energy. It is important to recognize that correlative history can vary, especially during periods of market stress. Moreover, each sector has differing volatility characteristics. The most volatile frequently are Information Technology, Energy, Consumer Discretionary, Materials and Communication Services. The least volatile tend to be Utilities, Consumer Staples, Health Care, Real Estate and Financials. Sector volatility also varies during different timeframes.
The Dow Jones Industrial Average was originated in 1896 and is the oldest U.S. stock index. It’s made up of 30 stocks, with those having the highest share prices carrying the most weight in its calculations. The S&P 500 aims to include 500 stocks, though the exact number varies, with those having the largest market capitalizations carrying the most weight in its calculations. Both are seen to gauge what’s happening in the economy, while many believe the S&P offers a broader and therefore more accurate picture.
The term “industrial” in the DJIA is a historical holdover, since most of the current stocks in the index aren’t industrial companies. Each stock is drawn from the 11-GICS sectors, but exclude utilities and transportation (they have their own indexes). The S&P, also drawn from the 11-GICS sectors, was developed in 1957 and is presently dominated by Information Technology companies, as reflected by their enormous market capitalizations. The math of the S&P attempts to capture a percent change on a $50 stock having the same effect on the index as the equivalent percent change on a $500 stock.
Portfolio puzzle pieces
Long after American Radiator’s leadership and the Radiator Building’s designers have left us, the original company, through a merger in 1929, remains a brand to this day. It is known as American Standard. The building itself was converted in 2001 into the Bryant Park Hotel. It was designated as a New York City landmark in 1974 and became a member of the National Register of Historic Places in 1980.
Understanding indexes, sectors, correlations, volatility patterns and other factors can be important in crafting our own investment portfolio masterpieces. As investors, we can choose individual securities or opt for a broader, more systematic approach, utilizing packaged products like Exchange-Traded Funds (ETFs), Mutual Funds (MFs) or model portfolios that utilize ETFs and/or MFs, while keeping our portfolio puzzle pieces top of mind. Morningstar.com is a good starting point for exploring options.
Patrick J. Kelly has spent more than four decades at the most senior levels in the financial services industry. He has held executive leadership positions in banking and securities firms, served numerous profit and nonprofit boards, possesses advanced education in economics, accounting and finance, and has been a featured guest in numerous financial media forums. At present, he endeavors to impart his experience and knowledge to younger generations whenever possible while also offering consultation on securities and banking industry practices for litigation-related expert witness testimony.
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